In my view, no other global currency is as flagrantly overvalued as the British pound. Despite a rapidly deflating real estate market in London, including most commercial properties, consumer confidence at an 18-year low and tepid export growth, the pound remains relatively strong against the dollar.

Since the dollar began its multi-year bear market in 2002, the pound has barely corrected. Though sterling has declined against the euro, it remains expensive versus the dollar.

The Dogs of the World Portfolio will probably post a loss as we quickly approach June 30th. Dogged by contrarian bets on banking and telecommunication stocks, the portfolio has been whipsawed the first six months of this year.

The strategy -- predicated on isolating the top ten highest yielding large caps in the world on December 31st, has declined a cumulative 6.5% this year, including dividends. This compares to a loss of 6.3% for the MSCI World Index over the same period.

To be sure, 2008 is an exceptional year to be a contrarian investor.

Is the stock market correct about the economy? Yesterday’s big rally suggests the American economy is resilient as Wal-Mart (NYSE-WMT) surprised analysts with a strong retail sales figure. Also confirming the primary trend of the market since late March is the Dow Jones Transportation Average – sitting at an all-time high this morning and up an impressive 20% this year.

Something unusual is happening at the Fed…

Ben Bernanke, FOMC Chairman, boosted the value of the U.S. dollar yesterday in a rare public admission of tacit dollar support. This marks the first time since the Bush Administration came into office in 2001 that the Fed has publicly supported a “strong dollar” policy.

The futures markets are starting to discount an interest rate hike by the Federal Reserve in October. Bond yields have risen sharply off their four-year lows in mid-March, core inflation is strengthening and the broadest gauge of money supply, the expansion of credit, is running at a dizzy 16% annualized rate. This data suggests the Fed is way behind the inflation curve and will start raising lending rates this fall.

Compared to the losses recorded by many American and European banks, the Canadian financial services sector has weathered the subprime crisis with far less pain. But if the oil boom fades and structured investment product losses continue to mount, Canada might face a serious economic slowdown.

So far, the Fed’s magic is working as subprime leaves prime time…

The Federal Reserve and other global central banks have successfully tempered the credit crisis since mid-March. The Fed’s effective bailout of now defunct Bear Stearns created a floor under the subprime wreckage. The good news is that a host of high-risk credit indices have posted big rallies over the last eight weeks, including a blizzard of new fixed income issues hitting the markets as companies return en masse to fund their operations.

I’ve followed Fidelity’s Anthony Bolton’s career for many years. I’d say he’s the closest thing to America’s Peter Lynch, the famous manager of the Fidelity Magellan Fund, earning 29% per annum during his 13-year tenure. Unlike Lynch, however, Bolton is a global investor and doesn’t like what he sees in world markets at the moment.

The former manager of the British based Fidelity Special Situations Fund, a value-contrarian fund, remains cautious on global markets, especially banking shares and the mining sector.